TMI Blog2016 (8) TMI 1311X X X X Extracts X X X X X X X X Extracts X X X X ..... sue to the file of the A.O for verifying the aforesaid claim of the assessee company, and on finding the same in order, delete the addition made in the hands of the assessee company Interest levied u/s 234B - Held that:- The levy of interest u/s 234B of the ‘Act’ would be automatic, mandatory and consequential to the framing of regular assessment in the hands of the assessee company, but the process of fastening the levy of interest u/s 234B must be preceded by surfacing of the fact that the assessee company is found to be in default as regards the statutory obligation as stood cast upon it with respect to payment of advance tax. Thus now when the issue pertaining to substantive addition had been restored by us to the file of the A.O for making necessary verifications and giving effect to the same as per our directions, we therefore also restore the present issue as regards the liability of the assessee company towards interest u/s 234B of the ‘Act’ to the file of the A.O, with the direction that the same be adjudicated in light of our aforesaid observations. Thus the ‘Ground of appeal’ No. 2 is allowed for statistical purpose - ITA No.6578 /MUM/2012, ITA No.6605 /MUM/2012 - - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant assessment year. 1.1 The Ld. CIT(A) has erred in confirming the action of Ld. AO in failing to appreciate that the liability to deposit service tax applicable on the services rendered by the appellant vests with the customers of the appellant under the reverse charge mechanism in terms of section 66A of the Finance Act, 1994. 1.2 The Ld. CIT(A) has erred in confirming the action of Ld. AO in failing to appreciate that the above amount did not accrue to the appellant and, therefore, the same cannot form part of the income earned by the appellant. 2. The Ld. CIT(A) has erred in confirming the action of the Ld. AO in levying interest under section 234B of the Act. The appellant craves leave to add, alter, modify or delete any grounds of appeal at or before the time of hearing. 2. We herein advert to the facts involved in the appeal of the assessee company for the A.Y. 2008-09, marked as ITA No. 6578/Mum/2012. The facts of the case are that the assessee company is a non-resident company incorporated under the laws of France since 2005 and engaged in the business of providing hotel related services to hotels across the world including India. The assessee co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as was made available on the statute vide Sec. 66A of the Finance Act, 2006. Rs.1,71,13,377/- Total Rs.5,96,41,829/- The A.O however did not find favor with the submissions of the assessee company and after making an addition of the aforesaid variance of ₹ 5,96,41,829/-(supra) to the Returned income , assessed its income u/s. 143(3) r.w.s. 144C(3) of the Act at an amount of ₹ 24,82,77,880/-. 2.2. That on appeal by the assessee company, the Ld. CIT(A) dealing with the issue as regards the variance to the extent of ₹ 4,25,28,452/-(supra), directed the A.O to tax the amount of royalty as per the gross amount credited in account of the assessee company by the customers in their books of accounts , irrespective of whether amount was actually paid or not, while for as regards the variance of ₹ 1,71,13,377/-(supra), the Ld. CIT(A) relying on the following case laws: (i). DDIT(Intl). Vs. Technichip Offshore Contracting Br. (Appeal No. ITA 4613/D/07; dated. 16/01/2009)(ITAT Delhi-I, Bench) (ii). Chowringhee Sales Bureau (P) Ltd. Vs. CIT (1973)87 ITR 542 (SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of law, it was submitted by Ld. A.R that as in the case of the assessee company the specified services, being business auxiliary services were provided by non-resident (i.e. the assessee company) to a resident (i.e. the customers), the statutory obligation for payment of service tax was cast upon the customers, who were required to deposit the same with the Government exchequer by virtue of the above mechanism of reverse charge . The Ld. A.R on a clarification sought by the bench as to whether the assessee company had raised any claim against the customers as regards the amounts which had been reduced by them from the fee/royalty payable to the assessee company, specifically in light of the fact that the statutory obligation as regards depositing of service tax with the government exchequer was cast upon the customers, therein placed on record a letter dated. 25.07.2016, wherein it was averred that as the levy of service tax u/s 66A by way of reverse charge mechanism was a new levy which could not have been anticipated at the time when the agreements were executed between the assessee company and the customers, therefore initially a dispute arose between the parties as to who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10, Order dated 23/6/2011. (v). ACIT, Cir.2(2) vs. Louis Berger International Inc. , (2010) 40 SOT 370 (HYD) 3.2. The Ld. Departmental Representative (for short D.R ) on the other hand supported the orders of the lower authorities and therein submitted that the A.O had rightly included the amount of the service tax deposited by the customers as a part of the royalty income of the assessee company, which thereafter had rightly been sustained by the Ld. CIT(A). The Ld. D.R in order to support his aforesaid contention, therein heavily relied upon the judgment of the Hon ble Supreme Court in the case of Chowringhee Sales Bureau (P) Ltd. (supra), wherein it was held as under:- 8.It is apparent from the order of the AAC and has not been disputed before us in the present case that in the cash memos issued by the appellant to the purchasers in the auction sale it was the appellant who was shown as the seller. The amount realized by the appellant from the purchasers included sales tax. The appellant, however, did not .pay the amount of sales tax to tile actual owner of the goods auctioned because the statutory liability for the payment of that sales tax was that of the appellant. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e his contention that the service tax deposited by the customer had rightly been included in the income of the assessee company by the A.O, and upheld as such by the Ld. CIT(A). 4. We have considered the rival submissions of either side and perused the relevant materials on record, including the orders of the authorities below. The facts leading to the issue under consideration are that pursuant to section 66A being made available on the statute vide the Finance Act, 2006 , w.e.f 18/04/2006, as per which specified services provided by a non-resident to a resident from outside India were brought within the sweep of levy of service tax by way of Reverse charge , as a fall out of which a statutory obligation in the present case was cast upon the customers to deposit service tax as regards the services received by them from the assessee company, as the customers were to be treated as the deemed service providers. The customers however declined to bear the financial burden and deducted an amount of ₹ 1,71,13,377/-(supra) towards Service tax from the fee/Royalty payable by them to the assessee company, deposited the said amount with the government exchequer and remitted only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany, had at any point of time accrued as income to the assessee company, nor was the same ever received by the latter, as a result whereof it can safely and inescapably be concluded that no part of the said amount did ever partake the color and character as that of Income in the hands of the assessee company, pursuant whereto we are of the considered view that the authorities below had erred in including the said amount as income in the hands of the assessee company. The view taken by us stands fortified by the judicial pronouncements relied upon by the Ld. A.R. 4.2. We now advert to the judicial pronouncements relied upon by the Ld. D.R. to drive home his contention that the authorities below had rightly concluded that the amount of service tax was liable to be included in the income of the assessee company. The authorities below as well the Ld. D.R had placed heavy reliance on the judgment of the Hon ble Apex Court so passed in the case of : Chowringhee Sales Bureau (P) Ltd. Vs. CIT (1973) 87 ITR 542 (SC). However, we are of the considered view that the judgment of the Hon ble Apex Court so relied upon by the Ld. D.R is distinguishable on facts, and thus for the sake of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of the present assessee company, in the aforesaid case relied upon by the Ld. D.R, the issue before the Tribunal was that whether service tax collected by the assessee from its customers was liable to be included in the receipts in terms of Sec. 44BB of the Act , or not. Thus we are of the considered view that as the facts involved in the aforesaid order of the coordinate bench of the Tribunal are distinguishable as against the facts of the case before us, therefore the reliance placed on the same by the Ld. D.R is found to be misconceived. 4.3. We though find ourselves to be in agreement with the claim of the Ld. A.R that as the amount of ₹ 1,71,13,377/-(supra) reduced by the customers on account of service tax liability from the amount of fees/royalty, which otherwise but for the said reduction would had been payable to the assessee company, had been accepted as such in full and final discharge of the liability of the customers as regards the fees/royalty payable to the assessee company, and the assessee company had not retained with itself any right as regards recovery of any such amounts deducted by the customers qua the liability towards service tax as was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter was not liable to pay any advance tax, as a result whereof the authorities below have erred in levying interest u/s 234B of the Act . The Ld. D.R on the other hand relied on the order of the CIT(A) and submitted that levy of interest u/s 234B, pursuant to framing of assessment in the hands of the assessee company, was automatic, mandatory and consequential, and therefore no infirmity could be pointed out in the order of the lower authorities. The Ld. D.R in support of his contention relied upon the judgment of the Hon ble Supreme Court in the case of : CIT Vs. Anjum M.H Ghaswala Ors. (2001) 252 ITR 1 (SC). 4.6. We have considered the rival submissions of either side and perused the orders of the authorities below and are of the considered opinion that the contention of the Ld. A.R that as the income of the assessee company was subject to deduction of tax at source, therefore for the purpose of computing the advance tax liability, the amount of income tax computed therein was liable to be reduced by the amount of the tax which was deductible at source during the financial year, irrespective of the fact as to whether the payer had deducted the same, or not, is found to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e which has been taken into account in computing the total income, i.e irrespective of the fact as to whether the payer had deducted the tax at source, or not, however while quantifying the liability of an assessee towards interest under Sec. 234B, the tax on the total income determined in the hands of the assessee is to be reduced only by the amount of the tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction and which is taken into account in computing such total income of the assessee. 4.8. We are of the considered view that the issue that where an assessee is found to be in default as regards the statutory obligation cast upon him with respect to payment of advance tax, the levy of interest u/s 234B of the Act will be automatic, mandatory and consequential, is no more res integra after the judgment of the Hon ble Supreme Court in the case of : Anjum M.H. Ghaswala (supra). Thus in light of the aforesaid settled position of law, we are of the view that though the levy of interest u/s 234B of the Act would be automatic, mandatory and consequential to the framing of regular assessment in the han ..... X X X X Extracts X X X X X X X X Extracts X X X X
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